Over the last few years, we’ve seen unexpected shortages of formula, Sriracha, and eggs, all of which have been highly observable on grocery store shelves. Less observable but still impactful to the American economy has been the shortage of accountants. As fewer students study the field and more workers burn out or age out, the quality of accounting work has declined and open roles have piled up.

Sensing a structural issue and the opportunity to close the gap or vault ahead of their Big Four competitors in the war on talent, BDO announced this week that it would establish an Employee Stock Ownership Plan (ESOP) that would make it one of the largest employee-owned companies in the US. The transaction involves a trust buying back stakes equaling 42% from existing partners and taking on a $1.3 billion credit line from Apollo. Over time, the trust will own the whole firm. In actuality, tenured accounting partners will likely control the majority of the shares, but the ESOP structure allows for non-partners to have equity upside early in their careers. And that equity upside might be the difference between a fresh graduate joining BDO or a competitor.

BDO’s trailing revenue was about $2.8 billion, and using margins from publicly traded peer CBIZ, margins are likely in the 10-15% range. So BDO will be levered at 3-4x EBITDA, likely higher than where it was before, but probably below where the PE-backed transaction services businesses like Riveron and Cross Country sit. So they’ll still have some flexibility to weather any downturns, although I’d expect BDO’s revenue is primarily from recurring, required audit and tax work and not transaction diligence, it’s probably higher quality (albeit lower growth) revenue than some of the more levered peers in the space. No one should be shocked that Apollo appears to make a smart credit bet on a partnership-oriented, non-cyclical service business.

I’m more impressed with the BDO partners betting on themselves and their ability to communicate the ESOP concept to young accountants. Communicating the value of incentive equity and options to financially savvy, tenured executives of PE-backed companies can be a tricky task; now imagine it at 1000x the scale with more junior workers. I’d be curious to chat with members of the West Monroe team – they became an employee-owned firm through an ESOP in 2012 when they had 325 people; a decade later, they sold a 50% stake to Michael Dell’s MSD Capital but had gotten to 2,000 employees during that intervening decade. So clearly 100% employee ownership didn’t hold them back from growth – so maybe the valuation (rumored at $2.5b or nearly 5x revenue) was just too good to pass up, and the employee ownership structure allowed everyone to secure some of the windfall.

I’m also reminded of a conversation I had with a (twitter-famous) and successful HoldCo entrepreneur a couple weeks ago. We touched on an acquisition he was working on where the differentiator of the business was introducing a more customer-friendly pricing model that it could afford to do because of its smaller scale, but the large incumbent competitors could not afford because of their operating model and entrenched infrastructure. To some degree I think it’s notable that BDO, and not EY (which has been in the news as it publicly debates whether to split its accounting and consulting businesses) or another larger firm, made this move – with fewer partners and stakeholders to get onboard than a Big Four firm, maybe they were able to react first. Time will tell whether this gives BDO a leg up on recruiting and retention, how it impacts cost and quality of services, and if it does, whether some of the other firms need to make similar moves.

In closing, BDO’s hoping that people who know (the value of equity ownership) will know BDO (and its ESOP).